Can your advisor offer everything you need?

Can your advisor offer everything you need?


You’ve probably heard the terms financial advisor, financial planner, wealth manager, investment advisor, stock broker, financial consultant, etc etc. What do they all mean? Well those titles really don’t mean anything in Canada. The Ontario Securities Commission has started a process to regulate the usage of the various financial advisor titles, but even that doesn’t go far enough for the general public to understand the differences.


So what are the differences?


Well there are three primary types of licenses a licensed financial advisor can have. I specify “licensed”, because some financial advisors aren’t licensed at all. They can give you advice with budgeting & saving but can’t legally provide investment related advice to you. The three types of licenses are:


Life Licensed: This is what an advisor needs in order to give any advice & sell any life insurance or related products. This includes segregated funds, critical illness insurance, disability insurance, whole life, term life & universal life. Life insurance advisors in B.C are regulated by the Insurance Council of B.C.


insurance council of BC

Mutual Funds Licensed: The is the bulk of the industry and what you will see with your traditional bank financial advisor. It provides them with the basic knowledge on how a mutual fund works and the regulatory structure around mutual funds.  Mutual Funds licensed advisors are regulated by the Mutual Fund Dealer Association (MFDA).



MFDA logo



Full Securities Licensed: The is frankly what the bare minimum requirement should be to offer any financial advice in Canada. It gives the advisor knowledge on how the market works, regulations and how to price individual securities. It is a much more in-depth version of the Mutual Funds licensing. Someone who is fully securities licensed can offer advice on: stocks, bonds, hedge funds, mutual funds, ETF’s you name it. Full securities licensed advisors are regulated by the Investment Industry Regulatory Organization of Canada (IIROC).


IIROC logo


Now I’m sure all of that probably doesn’t mean much to most people. So let me give you my insights, as someone who has completed the licensing requirements for all three.

  1. Unless you only need life insurance, if the advisor is only life licensed you need to walk away. I’m sure they are nice, and might even be a friend. The reality is any advisor who can only offer insurance is only going to offer insurance. This greatly handicaps what they can recommend to you, and often times you walk away with a crap product while the advisor gets a fat commission. The life insurance industry is grossly behind on regulatory reform and the industry still pushes excessively high costing products that pay advisors crazy high commissions that often aren’t in the clients best interest.


insurance only no way



  1. If the advisor is only mutual funds licensed, that might be fine for people just starting out. If you have less than $50,000 this really isn’t that big of a deal. Some mutual funds licensed advisors are great and have been around for a long time. They may even know a ton about the markets and be experts in personal finance. The problem is that they are constrained in what they are allowed to offer advice on. I’ll bet you they only seem to recommend mutual funds for some reason. Why would you pay for an advisor who can only offer you advice from shelf A, when for the same price the guy down the street can offer advice on everything from A through Z?


mutual funds only


  1. None of these courses are difficult. It may take a few tries for some people, but nearly everyone eventually gets through. If your advisor is only life licensed or mutual fund licensed, it’s only because they don’t want to go through the effort of becoming full securities licensed. Some firms, such as bank branches, only allow their advisors to hold certain licensing. Why would you want to work with a firm that is limited in what it can offer you?


  1. Even the full securities course is not enough education or a stringent enough licensing process. It is the absolute bare minimum you should require for someone who is managing your money professionally. When I was doing my full securities licensing, I had forgotten about one of my exams. I hadn’t even opened the book up yet when my calendar notification popped up saying I had the exam in 1 hour. I passed the exam. That’s not suggesting I’m some kind of whiz kid, far from it. It’s suggesting that anyone with a background in personal finance should be able to pass these exams without much effort. Not exactly the standard you want for someone managing your life savings is it?


  1. The ideal licensing you should want is a full securities advisor who is also life licensed. Certain firms will have you deal with a full securities advisor, and have another advisor in their office who is life licensed. Nothing wrong with this approach either. You want to work with a team that can offer you advice from all angles, and offer you the best solution to your problem.


IIROC plus insurance


  1. Canada needs to step up its regulation of financial advisors. There needs to be a base competency program in order to manage someone’s life savings. The current standards are a far cry from what should be acceptable. The mutual funds license was a single third year finance credit when I was in university. Wouldn’t you prefer someone who’s entire degree was personal finance?


  1. The overabundance of unqualified advisors in this country is what gives the industry its bad reputation. When the bare minimum to get licensed is so low, and the average consumer has no idea what the differences are, it’s a recipe for disaster. In my personal opinion most advisors are unqualified to manage your life savings. The industry should require further extensive training and education.


unqualified advisors



What should you take away from all of this? Well unless you are starting out you shouldn’t work with anyone who has less than their full securities license. Don’t let all the fancy acronyms fool you. The titles really don’t mean anything. At the end of the day, the license they hold controls what they can recommend. I’m not saying any advisor who isn’t fully securities licensed is a bad advisor. Rather there is nothing holding them back from becoming fully securities licensed. You have to choose who you work with and you may as well choose the advisor capable of offering advice on everything. Rather than the advisor only able to advise on a small subset.

Now what acronyms & designations actually matter amidst the alphabet soup on a financial advisors business card? Well that’s a story for another day: